Abstract
“An excess of everything is bad”. This famous old proverb fits well with the current condition of Australian household debt that is continuously rising. Research in Australia’s household indebtedness is scarce and strategies to control the rising household debt remain contentious. The government of Australia has introduced financial literacy and financial capability measures to help control the rising household debt. Given that the literature highlights the importance of improving financial wellbeing, we analyse if financial wellbeing is a factor, which could be relevant to the reduced household debt. We use the Household, Income and Labour Dynamics in Australia panel survey in our analysis and find that improved financial wellbeing is associated with the reduced debt-taking behaviour of Australians. Our robust analysis confirms our findings. Finally, our empirical results suggest that improving households’ perception of their personal financial situation can bring improvement in their financial decisions, including the decision to take on debt.
Highlights
IntroductionOver the last three decades, many countries, including Australia, have been facing a swift growth in household debt (Meng et al 2013)
Household Debt: A Panel Analysis.Over the last three decades, many countries, including Australia, have been facing a swift growth in household debt (Meng et al 2013)
For the purpose of showing the within and between components of financial wellbeing and the transition probabilities of financial wellbeing, the financial wellbeing variable is transformed into a dichotomous variable, coded zero if the mean value is below zero and coded one if the mean value is above zero
Summary
Over the last three decades, many countries, including Australia, have been facing a swift growth in household debt (Meng et al 2013). Since 2002, the mean value of household debt in Australia increased by 87 per cent, whereas the mean value of assets grew only by 42 per cent Within these ten years, a slight decline was noted from 2010 to 2012. The ratio increased by an increasing rate from 2012 to
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